Surrey Real Estate Investors Club - Property Analyis Presentation

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  • We will be showing some of the things that you need to take into consideration when evaluating a property. Is it really a good investment? Will you really make money on it every month? What about every year?
    No complicated formulas, just the basics of what you really need to consider and perhaps some things that you hadn't even thought of!
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  • Think and Grow Rich – Napoleon Hill
  • Food orders (their tab), discuss dessertsIntroduce ourselves. Welcome new members. Third installmentof SREIC which we set-up to get people interested in the possibilities of RE, particularly in Surrey, in a relaxed, friendly and hopefully educational envirnonmentWe focus on B&H and RTO investments and that is what we are primarily sharing information on over the next few months. Club Rules - No pitching without our consent. Honesty and confidentiality Open environment – ask questions, be friendly, participate, offer help to membersWhat we hope you gain from membership Enough knowledge for you to get started and start asking the right questions or new questions if you’re already investing Our opinions. Not a get rich quick event nor are we selling anything!Quote
  • Sponsors: ARE, ABC, CREW, RNY. SKIP: New attendee introductions – name, from, why you’re here, if you have investment property.
  • In these 2h meetings, it’s impossible to go in-depthFuture plans – 6 months of covering fundamentals of buying residential RE. May have some expert speakers in for certain topics such as financing. After that we hope to build a following of people who are taking action and want to continue to expand their knowledge and horizons.Bonus RTO?
  • Basic overview to get you thinking. Everyone’s deal and circumstances are different.Concentrate on B&H
  • We`re expressing our opinion - not selling, promoting or advocating anything and if you go out and use the Information it`s at your own risk and all examples we give provide no guarantee of future performance of any investment.
  • Latest RTO story?
  • In groups write down some of the things you would consider.
  • Make this 4 slides?Consideration:1. Area (environmental risks, zoning and use, mtc of other houses, parks, other amenities, transportation, common facilities, Type of tenants) 2. Property specific (Light, Noise-day and night, storage, design (story from viewings), Neighbours, gut feeling, condition (in and out), parking, smell, upgrades, current residents rentals allowed or restrictions)3. Deal/tactic specific (potential upgrades, exit strategy, liquidity, seller motivation – crew magYou can get SOME of this information looking at the internet at maps but not all of it. Nothing replaces actually being there, smelling and seeing the area first hand. (ex: looking at properties that said hardiplank… not hardiplank also Figuring out values-Do same analysis for a number of properties on the market and recently sold in the area. ** if a property is similar in size and location but much more expensive or cheaper (sqft basis) find out why. Could be less sun, worse location, noisy street, near dump….
  • Many rental properties have expenses of at least 30-35% of rental revenue (tax, insurance, management, mtc, utilities, etc…) so 65% should be for financing cost and if planned well leave you some cashflow. so if rent is $2000 then 2000*0.65=1300
  • 1% rule you do this….The closer it is to 1% or + the better it will cashflow. This will give you an idea of whether you should investigate a property further.Whether your property will cashflow will depend on a variety of factors… this gives you a quick way to assess it. In a low interest rate market (below 4%) with 30 yramort and putting 20% down you can probably cashflow with properties around 0.6%
  • GRM rule Another way to quickly calculate whether a unit is likely to cashflow.
  • Its not what the sellers asking!Its not what the tax assessment says (but it’s a good idea to look in an area at the tax assessment/sale price ratio- it may give you an idea of when a seller is out to lunch!) –it is most likely the reflection of average prices in the area about a year ago. Another way to compare is sale price to list ratios… that may also give you an idea of what the property you are looking at is worth.
  • Its not what the sellers asking!Its not what the tax assessment says (but it’s a good idea to look in an area at the tax assessment/sale price ratio- it may give you an idea of when a seller is out to lunch!) –it is most likely the reflection of average prices in the area about a year ago. Another way to compare is price to list ratios… that may also give you an idea of what the property you are looking at is worth. Rentometer
  • Group exercise
  • Gross Actual vs Gross PotentialWhere to find rent rates. Is the tenant in place. Ask for contract (may be below market)How much to set aside for vacancy? Depends on the area, type of unit, current or planned tenants, tacticOr use reserve fund
  • Group Exercise
  • Where do we find these numbers?We need to know how much DP we have available, likely interest rate and amortization period to calculate mortgageProperty taxes – no HOG, will increase (what have been historical rates)Strata fees – historical increases, special levies?PM: say you’ll do it yourself, but what if this changes?At this point you have all the information needed for 35%, GRM
  • Using our spreadsheet…Compare worst case and optimistic case of same propertyCompare GRM/1% and big cashflow differencesThen compare recently viewed property with realistic numbersStress test the numbers.
  • This is what most people use when comparing financial products
  • For B&H different scenariosEven with no appreciation
  • 8.30
  • Magazine give-away (CREW sponsor). (promo code: 35% discount SREIC)Next month – guest speakers from RNY. Nationally renowned, best online presence, Investors of Year, CREW speakers Out of room by about
  • Surrey Real Estate Investors Club - Property Analyis Presentation

    1. 1. Surrey Real Estate Investment Club Welcome!"Real estate is at the core of almost every business, andits certainly at the core of most peoples wealth. In orderto build your wealth and improve your business smarts,you need to know about real estate." ~Donald Trump
    2. 2. Surrey Real Estate Investment Club Welcome!“Risk comes from not knowing what you’re doing.” ~Warren Buffet
    3. 3. Sponsors Welcome to the SurreyReal Estate Investors Club!
    4. 4. Future Plans1. Strategy & Getting Started2. The RE Cycle and Selecting An Investment Area3. Property Selection and Cashflow4. Financing5. Due Diligence & Making an Offer6. Tenant Selection & Management
    5. 5. Review of Last Meeting• What is the real estate cycle and how do we use it toour advantage?• How do I decide where to invest?• Location fundamentals – macro-environment,economics, learning a sub-market www.AspireRealEstate.ca/blog
    6. 6. Tonight’s Agenda• More on property selection• Rules of Thumb• Calculating cashflow• Calculating returns• Some examples
    7. 7. The Legal Stuff…The information contained herein (the “Information”) is intended forgeneral informational purposes only and should not be relied upon byrecipients hereof. Although the Information is believed to be correct, itsaccuracy, correctness or completeness cannot be guaranteed and has notbeen verified by either Aspire Holdings or any of its affiliates.Views expressed in this presentation are based on research materialsavailable from sources that Aspire Holdings (d.b.a. “Aspire Real Estate”)considers reliable but neither guarantees, warrants nor assumes anyresponsibility or liability of any kind with respect to theaccuracy, correctness, completeness, or suitability of, or decisions basedupon or in connection with, the Information. All real estate opportunities come with varying degrees of risk and pastperformance is not an indicator or guarantee of future results. Prices cango up or down and current performance may be lower or higher than anyperformance data quoted for comparisons.
    8. 8. Picking a PropertyWhat are your considerations when picking a property?
    9. 9. Some things to considerA. AreaB. Property SpecificC. Deal/tactic specific
    10. 10. Calculating Cashflow Income – Expenses = CashflowIn almost all cases, you need this to be a positive number!!
    11. 11. Will it cashflow? Rules of thumb• Income/financing ratio 65% of income should be max for financing
    12. 12. Will it cashflow? Rules of thumb• 1% rule Need to know 1. Price of the property 2. Rental income Ex: $200,000*0.01=$2,000 if you get $2,000 rental income you will most likely cashflow.
    13. 13. Will it Cashflow? Rules of thumbGross Rent Multiplier (GRM) Need to know 1. Price of the property ($200,000) 2. Rental income Ex: $200,000/(2,000x12)=8.34 Up to about 10 it will most likely cashflow or be neutral – in some cases up to 15.
    14. 14. Gathering information• Valuation of a property • What is the cashflow? • What are other properties in the area worth? • What would it cost to build that property right now?
    15. 15. Gathering information• Rental Income • www.padmapper.com • www.craigslist.org • www.kijiji.ca • Other local sites (ex. Usedvictoria.com) • Local classifieds • For rent signs
    16. 16. Calculating Cashflow Income – Expenses = CashflowIn almost all cases, you need this to be a positive number!!
    17. 17. Calculating CashflowFor a typical buy and hold, single-unit, residential home, what are the income sources?
    18. 18. Calculating Cashflow: Income • Primarily rent • Storage = Gross Income • Garage • Other parkingGross Income – Vacancy = Gross Operating Income
    19. 19. Calculating Cashflow: ExpensesFor a typical buy and hold, single-unit, residentialhome, what are the expenses?
    20. 20. Calculating Cashflow: Expenses• Mortgage • Water Utility• Other Utilities (heat, hydro) • Insurance• Repairs and Maintenance • Property Tax• Property Management • Strata Fees Gross Operating Income – Expenses = Net Operating Income
    21. 21. Property A A BList Price $309,900 $309,900 $279,900Potential Purchase Price $307,000 $295,000 $270,000Price / sq.ft $246 $236 $196Down payment % 20% 22% 20%Down payment $ $61,400 $64,900 $54,000Mortgage amount $245,600 $230,100 $216,000Closing costs (2%) $6,140 $5,900 $5,400Total cash required $67,540 $70,800 $59,400Amortization (yrs) 25 30 30Amortization (mnths) 300 360 360Interest Rate 4.00% 2.89% 3.80% Periodic Rate 0.33% 0.24% 0.31%Mtg Pmt $1,292 $954 $1,003Strata/Condo Fees $150 $138 $150Property Taxes / Water $200 $180 $190Heat $0 $0 $0Electricity $0 $0 $0Insurance $30 $15 $22Maintenance $160 $132 $145Prop. Management $160 $0 $0Total $1,832 $1,419 $1,510Rent $1,600 $1,650 $1,625GRM 16.0 14.9 13.81% Rule 0.52% 0.56% 0.60%Monthly Cashflow -$232 $231 $115Annual Cashflow -$2,783 $2,767 $1,382Comments Reserve Fund = 2 mths
    22. 22. Return on InvestmentThere are many methods and calculations to calculatereturns – some simple, others very complex!For these examples we will use: ROI = Gain from Investment – Cost of Investment Cost of Investment
    23. 23. Calculating Cashflow: ExpensesReturn on Investment Calculations- Buy & Hold $315,000 5 yrs 10 yrsAfter 5 years - OSB on 1st = $194,633 $194,633 $194,633 $168,840 $168,840Annual Appreciation 3% 0% 5% 3% 5%Est value at X% annual = $365,171 $315,000 $402,029 $423,334 $513,102Net Equity (after 5/10 yrs) = $170,539 $120,367 $207,396 $254,494 $344,262Cashflow (after 5 yrs) = $6,911 $6,911 $6,911 $13,822 $13,822Total Return (equity + cashflow) $177,450 $127,279 $214,307 $268,316 $358,084Capital Invested $70,920 $70,920 $70,920 $70,920 $70,9205 Yr / 10 Yr ROI 150.2% 79.5% 202.2% 278.3% 404.9%Avg Annual ROI (not compounded) 30% 16% 40% 28% 40%
    24. 24. Need more cashflow?• Increase rents? Pets?• More cash down?• Other income sources?• Pay less?• Reduce expenses?• Increase amortization?
    25. 25. Take Away Summary1. Look at the bigger picture, not just the deal2. Analyze the numbers and stress test them3. Leave your emotions at home!
    26. 26. Feedback, Prizes and Action plan!Questions or comments? Please let us know!Next meeting Wed. April 24th @7pmSummary: www.AspireRealEstate.ca/blog/• Find a new person in the group and tell them what you are going to do in the next month to achieve your goal!• Follow up at next SREIC meeting.

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